US dollar strengthens against the euro on renewed risk aversion

The US dollar strengthened against the euro yesterday as risk-aversion returned to the market, finishing the day at 1.3580.

• In early trading yesterday the US dollar rose slightly against the euro, as investors became cautious ahead of HSBC’s first quarter results. This speculation dented last week’s positive sentiment on the financial markets, causing investors to buy into the perceived safe-haven of the greenback early on.
  
• Although significantly better than the last three months of 2008, when the results came they did little to ease investor nerves into lunchtime, as the bank admitted its figures were boosted by one-off gains.
  
• However, a Chinese government report showing urban fixed-asset investment rose at the fastest pace in more than two years spurred demand for higher-yielding currencies like the euro mid-afternoon.
  
• The single currency’s rally mid-afternoon was further extended following a press conference held by President of the ECB, Jean-Claude Trichet, where he said policymakers could see the first signs of an economic recovery: “As far as growth is concerned, we’re around the inflection point in the cycle, that’s the sentiment.”
  
• However, the euro’s gains were wiped out late in the day yesterday as general risk-aversion returned to the market following further falls on European equity markets. Investor speculation surrounding the eurozone’s GDP and CPI figures due on Friday also weighed on the euro as some feared the region may be some way off an economic recovery.
  
• In trading so far today the euro has pared all of yesterday’s losses against the dollar, as investors continue to digest last week’s “decisive” ECB policy decision.
  There are no major announcements due in the eurozone today, whilst in the US the Trade Balance is out at 13.30 BST.